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Consultancy Encourages Taking 'One Step' Toward Transforming Neighborhoods  585 Niagara Street, a project done by Inc Dev alumni Bernice Radle. (Buffalove Development) Monolithic capital stacks are quaking; REITs are reshuffling; an economic downturn is looming. But amid a flurry of harbingers in the commercial real estate industry, one grassroots consultancy says it’s time for you — yes, you — to step up. Or not even necessarily “up.” “Take one small step off the curb” is the message from Incremental Development Alliance (Inc Dev), a national not-for-profit group of developers that wants to help anyone getting started in real estate. STEP, among the group, is an acronym for buildings that are small-scale, time-enhanced, entrepreneurial and purposeful. In a November workshop hosted by The Hopewell Downtown Partnership (HDP) in Virginia, mentors Ryan Terry and Richard Price championed the idea that everyday citizens who care about their communities are best suited to creating wealth and transforming their own neighborhoods one project (and one step) at a time. The First Step The key to this method is to first identify what’s missing in your local community. If you notice gaps in housing, retail, workplaces or services in your daily life, consider them opportunities. A corner store here, a duplex there; “these are the puzzle pieces that investors neglect,” Price said. Large developers nowadays are seeking returns from large single-family home developments and massive, high-end multifamily complexes, Price said. “But guess what? Most people don’t want to see a lot more of either.” Your advantage over large-scale developers is that you know what types of places actually enhance daily life in your community, he said. “You have skin in the game.” After spotting some opportunities to add value in a market, try to confirm your observations. Economic groups like HDP conduct studies on a given area’s fundamentals and should be sourced for data, Price said. “You really start by trying to understand the basic stuff about your market … like the existing rents and sale prices, and what buyers and renters are looking for.” A rudimentary grasp on the market will help crystalize what type of project makes sense for a given location. But more importantly, Price stressed, is to ask what makes sense for you. To do this, consider a couple of factors. “Do you own or have access to property of any size or kind?” Terry asked. “I don't care if it's 10 square feet on a street corner in the middle of nowhere, or if it's your own house. Is it worth considering it as a potential project?” Alternatively, do you own a business? “If you rent a commercial space, the next logical step is to consider a project that would also allow you to own the real estate that your business sits in.” Knowing someone who owns property can go a long way, too. “A lot of times they inherited it, but don't really know what to do with it, so it just sort of sits there,” Terry continued. “You show up with some cool ideas and figures and all of the sudden, you’ve got a partner.” Having property available is key. If you don’t own the land or have it under contract, “you’re at a high risk of wasting your time,” Price stressed. “I would strongly encourage you to focus first on getting a piece of land under contract and then figuring out what makes sense for that project — not the other way around.” Price started with his own house. “Renovating the basement [into a rental unit] gave me the confidence and a certain amount of savvy to start to understand what the residential real estate market was about in Charlottesville, and how to be a landlord,” he said. The Money Part By this point you’ll have discovered your “why,” Terry pointed out. “You have to understand what you want out of this. You may want to do one purposeful project, maintain a side-hustle or you may want development to be your new full-time job.” From there, an entrepreneurial real estate developer just needs a few more ingredients, according to the mentors: some people to help reinforce goals, whether that’s through investment, promotion or moral support; enough hustle and willingness to not quit when it inevitably gets hard; and, of course, some money — whether that’s yours or someone else’s. “The second step to becoming a developer is the money part,” Price said. “But don’t be scared,” he urged. “I really need to emphasize that real estate finance does not need to be complicated.” "Basically, if you can add and subtract, you can do a pro forma. And if you can do a pro forma, you can be a developer." - Richard Price Start with a pro forma, he said. “If you haven’t heard that term before, it’s basically just a score sheet for real estate development where you keep track of expenses and potential revenue. It answers the fundamental question of ‘how am I going to make money on a project like this?’” Get figures on “soft costs” in your area — things like how much designers charge, how much it costs to get a project approved by the municipality, and what to expect in legal fees. For “hard costs,” gather data on the price of materials and how much builders charge for similar projects. The pro forma will be a living document, Price continued. “You never get it right the first time; it's something to keep going back to and working on.” Luckily, he said, there are plenty of resources available to help create a pro forma for any type of project. But more important than how to get money from a project, is how to get money for a project. Both Terry and Price said they began developing with modest resources. “I had to borrow money from a bank,” Price said. “Then I went and raised a little bit of money here and there from people we knew.” Personal connections in the financial services industry can certainly help, Price said, but even without that, presenting solid fundamentals supported by a plan and passion should make it possible to land a loan. A community development financial institution (CDFI) in your area is also a good starting point, Inc Dev executive director Sherry Early chimed in. “CDFIs have less rigorous underwriting restrictions and they also have patient capital.” “It’s very difficult to do things in this business with bad credit and no cash,” Terry said. “But I’m here to tell you that all sorts of people have done it.” Early said she started with personal savings for her first project in Gary, Indiana, then found it increasingly easier to go through due diligence processes with banks and get loans on subsequent projects.  Entrepreneur Bernice Radle's 585 Niagara Street project. (Buffalove Development) The concept of “other people’s money” is crucial for real estate entrepreneurism, Terry said. Small projects — especially first projects, almost always start with one or two types of partners. Friends and family are a common source of seed money, but it all depends on who you know. Some people may be willing to contribute, but expect too high of returns, Terry said. “But if it’s someone who is otherwise getting 6% from a mutual fund and you can promise them 8%, you’re looking pretty good.” Most professional investors are looking for evidence of stable cash flow or a high return that reflects the risk they’re taking. “But on a first project, you have neither,” Terry said. “You’re high risk and not very potentially high reward,” and you have no long-term cash flow to show. “That’s why friends and family are your best bet.” The other type of partner is someone who can contribute property or “sweat equity," Price said; maybe they are willing to put in labor on renovations or even a contractor who contributes their skills and expertise. The developers recommended steering away from owner-financing for a first project, though. When the owner of a property sells you their property on interest, “typically it’s going to be more risky and more expensive to you as a borrower,” Terry explained. “The rates can be double or triple over prime. If you miss a payment and you’re late, they take that property right back and you’ve lost a lot of money.” Instead, seek out the “most vanilla form of financing possible” for your first project, he continued. “You’re going to make so many mistakes on your first project anyway. Don’t put yourself in a position where that mistake might be fatal.” Size Matters After observing the market, making sense of simple finances and seeking out some capital from friends, family, partners or a bank, Price said, it’s important to “right-size” your project. By that he means that “bigger isn't necessarily better.” The smaller the project, the more straightforward it is to develop, Price said. As you add space, the seesaw between costs and profits becomes harder to balance. “If you’re building a one-story building, it’s basically a simple box,” he continued. “No stairs, no elevator and minimal amounts of mechanical space. Just about every foot you build is rentable.” As you add size, you add complexity, he said. Costs per square foot go up, which means that the rents or sale prices required to achieve returns also go up. “If you start to get into really large-scale development, code requirements change,” Price elaborated. Fire protection requirements, for example, get more stringent. “You start to devote space to nonproductive uses. If you're building stairs, elevators, hallways, mechanical spaces and structured parking, that’s square footage you can’t get revenue from.” Your very first project is likely going to be really modest in scale, Terry said. “It’s likely going to be a renovation — and I’m not talking gutting a building, I’m talking about things like fixing a roof and painting. Maybe you rent it out, but maybe you have to sell it to establish a nest egg for your next project. If you’re starting with $0, like a lot of us do, you’ve got to start small.” Real Estate Development Is Like Farming But this isn’t about flipping buildings and making a quick buck, Price cautioned. “You're focusing on the long-term rewards of the project. You're helping build rich soil to nurture a place that can grow and help you with your endeavors as you're going forward. We call this ‘finding your farm.’” One successful project tends to lead to the next, Price continued. “As you start to do more projects, it starts to improve your neighborhood. The neighborhood starts to offer more opportunities, and suddenly you’re on a roll and instead of asking the questions, you're the person who’s answering questions for other people. Small-scale development tends to build stronger, more sustainable neighborhoods because the projects are typically flexible, Price said. “They're time-enhanced, meaning the buildings are designed to grow and adapt,” he continued. “What made sense 10 years ago may not make sense now, but with small, flexible buildings, it’s easy to convert them into something new.”  'Middle housing' example Eleven: 30 condominiums in Charlottesville, Virginia. (Courtesy of Richard Price) Price’s “farm,” the automobile-centric east side of Charlottesville, Virginia, “had been beaten up by many years of disinvestment,” he said. “It was not a vibrant neighborhood, but I saw a lot of potential; I looked around and said ‘wow, these are nice old buildings.’ There's some great natural features and it’s walking distance to downtown. I was one of those people who said, ‘what can I do here?’ And I started doing.” First it was a six-unit residential infill project that included mixed-use income, Price said. Then an old factory building converted to offices, restaurants and a bakery. Next some townhouses built on an old railroad yard. “Now I’m one of several developers working in this neighborhood and our collective efforts over time have started to transform this forgotten neighborhood into a place that's now in demand.” Ideas for First Commercial Real Estate ProjectsBuildings aren’t even necessary for incremental real estate development, though. The basic building block of urbanism is about bringing people together, Price said. Businesses like farmers’ markets, street fairs and food truck courts are ones you can start partnering with, possibly by hosting them on vacant land, before helping them graduate to brick-and-mortar spaces. Pop-ups and short-term rentals are also good first steps. “Bring someone from a tent into a more permanent solution,” Price said. “One of my colleagues bought an old industrial building and filled it with a bunch of desks, which he rents out as a coworking studio.” “Liner buildings” are another good option. This is a term for very small shops positioned on a street front to mask parking or other unsightly structures behind them, with facades that meet a city’s design approvals. Live-work housing, with a retail component on the first floor and apartments on the second, can also be a great first project that provides two sources of income. Examples of first projects from Inc Dev mentors and mentees run the gamut. Monte Anderson, for instance, bought a long-vacant property on the “wrong side of the tracks” of South Dallas and converted it into an incubator space for young entrepreneurs called Grow DeSoto Marketplace, Terry said. “He chopped a grocery store up into a bunch of 300- to 500-square-foot spaces and the rest is shared facilities and common space.” Part of Anderson’s model includes business mentorship, or basically the “Lord’s work,” Terry joked. “But what he has found is that because these spaces are so small, they are both profitable for him on a per square foot basis, at say $400 per month, but they’re also affordable to the tenants — the youngest of whom is a twelve-year-old who was since able to get a loan from the bank to operate his snow cone business.” Going-in costs can be low with old buildings, he continued, but end up being cash-flow positive with careful management, Terry continued. Alissa Shelton bought an old bank in a Detroit suburb and turned it into a community incubator space called Bank Suey.  Bank Suey, a community space in Hamtramck, Michigan. (Bank Suey) Others have renovated commercial spaces into middle housing, a term used for duplexes, fourplexes, cottage courts and small multiplexes that sometimes have a commercial component integrated or nearby. It’s a type of project Terry often finds himself gravitating toward.
Jenifer Acosta bought an old building with “terrible 1950s cladding that had beautiful brick underneath,” Terry said. “She renovated it and turned it into a commercial use downstairs and loft apartments upstairs.” Look at every building’s potential, he continued. Bernice Radle saw a “really plain commercial building — just a big, brick box, really — and rehabbed it into apartments on the upper floor with commercial uses downstairs. She put a cool mural on it [with the help of an established artist as well as volunteers] and got some cool tenants in there, and it’s a great cash-flow project.” In This Economy? With interest rates and inflation rising, even the biggest institutional players are currently balking on real estate projects, the developers concluded. “This model is not going to save you from all the other stuff that's going on in your economy, okay?” Terry said. “This is not a panacea.” But you, as an individual, “likely have a burning reason why you want to do this,” Terry continued. “You have to have your heart in it, because if you don’t, you’ll quit.” Wealth creation is likely a big reason, but one that won’t set you apart from large-scale developers. “It’s not that we’re out here doing this for charity,” Price said. “We all need to earn a living and hopefully build wealth over the long term. But for me, there’s nothing more gratifying than having the people in this neighborhood walk up to me and say, ‘that's a great project. We’d love to see more of that kind of project here in town.’” The shortage of starter housing compounds the country's mounting crisis. It’s no secret that many markets across the country have serious shortages of housing for their workforce populations. “Most cities and regions have fallen behind on housing delivery,” observed Daniel Parolek, architect, urban designer and author of Missing Middle Housing: Thinking Big and Building Small to Respond to Today’s Housing Crisis (2020). impacts those who want to buy homes rather than rent too, notes Nicholas Julian, senior program manager for land use at the National Association of Home Builders. “A staggering 96.5 million households, or roughly 73 percent of all U.S. households, cannot afford a new home at (the current $425,786) median price point,” Julian remarked. Julian and Parolek agree that adding missing middle housing to our nation’s stock can help ease the shortage. “These are homes that are more attainable for valuable members of your community including teachers, nurses and firemen,” Julian suggested. “Missing middle housing units, like duplexes and townhouses, may be what is attainable as ‘starter housing’ for folks entering homeownership for the first time these days.” These dwellings can also suit college students, young renters, seniors and young condo buyers. “There are many families who are doubling up in households or with roommates due to affordability,” commented Jessica Lautz, deputy chief economist for the National Association of Realtors. “More affordable solutions may allow young adults to leave the nest or roommates to have household formation independently.” Defining missing middle Missing middle has two meanings: The first is Parolek’s, which is housing that bridges the functional gap between detached single-family homes and mid-rise complexes. It’s the duplex to fourplex, townhouse and courtyard apartment, compact live/work spaces and right-sized buildings that fit architecturally into low-rise neighborhoods with detached single-family homes. It’s also defined as housing in the middle of the price range, between subsidized affordable units for those at or below the poverty level and luxury units for the affluent. There’s a sweet spot where these two definitions converge that millions of would-be tenants and homeowners that serve us all in our cities’ commerce and civic workforce compete to live in. Enhancing livability The goal is creating missing middle projects that enhance livability. They tend to fit well into walkable neighborhoods with coffee shops, restaurants and small markets safely accessible on foot. Pocket playgrounds every quarter mile and conveniently located co-working spaces make these communities appealing to many prospective residents, the architect notes, and potentially engender less development opposition from established neighborhoods. “In our world, where NIMBYs are everywhere and they push hard against any non-single-family projects, the size, scale, and typology of these ‘house scale’ buildings support an easier path to rally community support, especially those that are predominantly single-family home communities,” Parolek remarked. David Spence, CEO of Dallas-based Good Space, renovates missing middle rentals in one of the city’s emerging neighborhoods. Spence attributes the success of his missing projects, including one that became a case study for Parolek’s book, to an emphasis on quality and detail. “We’ve always spent beyond the market on renovations, and it has always worked out in the end in the form of sufficient rents and potential [building] sales prices,” he shared. “We squeeze in a ‘full appliance package’ (e.g., washer/dryer, central HVAC, microwave, vent hood, etc.), but parking is scarce, usually uncovered, and sometimes curbside. There’s no fitness center, no palatial bathrooms, no dog park.” But the firm provides quality in other ways through restoration of old fixtures and finishes, a sense of community, lively color schemes. Since these features don’t cost as much as much as a swimming pool and jacuzzi, Good Space is able to control their basis. Missing middle demographics Parolek sees missing middle housing especially appealing to single- female households, an often overlooked segment, he finds. “Keep in mind that 30 percent of most markets are single-person households,” explained. “A well-designed small unit with higher-quality finishes is ideally what they want. They also like the built-in sense of community and security.” Downsizing Baby Boomers are another good market, he points out. “They are looking for walkability to amenities, a sense of community, and the ability to lock off the unit and travel without having to worry about maintenance,” he explained, noting AARP has included missing middle housing in its Livable Communities Initiative. Another niche Parolek identifies is the household seeking a car-free lifestyle. Walkability and easy transit access is key for these prospects. Opticos-designed Culdesac Tempe, a 650-unit Arizona master-planned community. “It will be the largest car-free community in the United States when completed,” he commented. Last, but definitely not least, is the multi-generational opportunity, where grandparents can live close to their adult children’s families while having their own place in the same community. “Missing middle has historically provided great opportunities to deliver multi-generational housing and will also do so in the future,” Parolek predicted. He sees that encompassing different housing types that can be flexibly combined and separated as kids go off on their own, boomerang kids return, and childcare or eldercare support is needed. Private and profitable One point Parolek is eager to make is that these missing middle projects can definitely be built profitably since they are not dependent on nonprofit organizations to bring them to fruition, like many affordable developments, and they can provide marketing opportunities to sophisticated renters with no competition. “When we opened our first renovated apartment building in 1996,” Spence recalled, “we assumed—based on patterns of the day—that our tenants would preponderantly be gay men moving from similar in-town neighborhoods. As it turns out, 75 percent of our first rent roll came from suburban addresses and 60 percent were single, straight women. While we definitely skew ‘urban’—artsy, alternative, adventurous—our rent roll has remained conventional in many ways: educated, fiscally responsible, generally sober, 30s-ish, upwardly mobile, connected to the community, etc.” While many missing middle projects have been built by smaller local firms like Good Space, Parolek also recommends them being integrated into larger master-planned communities and attracting larger regional and national builders. He sees that as a better development model and competitor to single-family build-to- rent that may be more appealing to city halls and statehouses. Jeff Kottmeier, senior vice president with John Burns Research and Consulting, points to employers acknowledging the need for attainable workforce housing in their conversations with economic development teams. “Some companies are coming to the table saying, ‘I’ll build x units of apartments or homes’ when constructing a new manufacturing facility,” noted. “We’ve seen that in some of the consulting studies we’ve completed in manufacturing towns.” Rezoning and other challenges Two of the reasons why this category has lagged are economic and regulatory barriers, though cities and states are looking hard lately at zoning changes to generate more housing opportunities. “Recently passed state legislation allows up to four units on any single-family lot in Oregon, California, Nebraska, and Washington,” Parolek reported. “A few other states like Montana and New Hampshire have legislation in the works.” He’s working with other cities to remove policy, planning and zoning barriers for missing middle housing development, he adds. Julian calls re-zoning the low-hanging fruit of the housing affordability challenge. “Simply changing codes to legalize housing that is not the traditional large single-family home on a large single-family lot will allow housing that is naturally less expensive,” he observed “It is not the be-all and end-all, but there is little downside of zoning reform to allow missing middle housing development if housing affordability is a true priority.” The NAHB executive notes that, for most home builders, there is little control over cost inputs like development fees, labor, materials and land. “Municipalities have the ability to alter codes and land use policy to make it legal to build smaller units on smaller lots, naturally producing more affordable housing,” he said. New construction faces a particularly difficult route due to the need for land, regulations, and then basics such as material costs, according to NAR’s Lautz. “Adaptive reuse may be an easier route in some communities where there are existing vacant properties that can be rezoned for higher density residential housing,” she noted. Some cities, are encouraging infill/density where existing townhomes are torn down and rebuilt, adding an additional floor and more square footage. “Washington, D.C., is an example where you see homes with a fourth or fifth floor that can be rented as a single townhome or separate units,” Kottmeier said. The biggest cost barrier is that any three-unit or larger housing types trigger the use of commercial building code, Parolek lamented. “We obviously do not want to create dangerous living environments, but it seems like codes make it far too expensive to build these smaller, multi-unit buildings,” he suggested, noting some three- or even six-unit buildings are actually smaller than large single-family homes. “Maybe research could be developed to help define less onerous and less expensive life-safety requirements for buildings up to 10 units to make them more viable.” This is a bipartisan cause that increases property rights and also helps create more workforce housing for middle class citizens, Julian said. “Cities need to refine zoning to remove barriers and find more areas and processes to allow this,” he declared. Advocates like Parolek are working on this. Jamie Gold, CKD, CAPS, MCCWC is a Forbes.com contributor, wellness design consultant, industry speaker, and award-winning author of Wellness by Design (Simon & Schuster, 2020).
https://www.multihousingnews.com/how-missing-middle-housing-can-boost-livability-attainability/  Navigating interest rate disruption in CRE, bank and hospitality execs on the state of lending, Trepp’s April CMBS report, and office buildings are ripe for multifamily conversion Navigating Interest Rate Disruption in Commercial Real Estate The inflation rate has cooled some as mid-2023 approaches, allowing the Fed to slow the pace of its rate hikes. But for many, the damage is done, with the fallout still reverberating, especially in commercial real estate (CRE). An ebook from PwC—“Navigating interest rate disruption: How real-time data can facilitate better CRE decisions amid volatility”—provides an overview of the CRE market and some advice on how to manage through. The report looks into a combination of factors, including economic and geopolitical forces, the ripple effects of Covid, increased construction costs, inflation, and more. Sections of the 9-page report (with excerpts) include:
 Six Bank and Hospitality Executives Discuss the State of Lending Amid Bank Failures
Lenders and hospitality executives at the 2023 Meet the Money national hotel finance and investment conference commented on the current state of the banking crisis. Six of their comments were published in Hotel News Now: Ash Patel, president and CEO, Commercial Bank of California; Alan Reay, president, Atlas Hospitality Group; Matt Mitchell, vice president, Hall Structured Finance; Bruce Lowrey, managing director of investments, CIM Group; Matt Bailly, vice president of real estate, Prospera Hotels; and Keegan Bisch, vice president of originations, Stonehill. Read their comments here. For more from the conference, see this article from CoStar: “Five Key Takeaways on Hotel Investment from Meet the Money Conference.” For more on how bank failures could make hotel financing harder to find, click here. CMBS Delinquency Rate Holds Steady in April, But Office Rate Continues to Rise This is an excerpt from Trepp’s Delinquency Report (May 3). To access the full report, click here. “The Trepp CMBS Delinquency Rate held steady, but the segment that everyone continues to watch closely saw its rate move higher again in April 2023. The Trepp delinquency rate was unchanged in April at 3.09%. Declines in the retail, lodging, and multifamily rates offset a small increase in industrial loans and a bigger increase for offices. “Office remains the most heavily watched part of the market as firms look to aggressively reduce space. Sublease space is at or near record highs in many markets as demand from big tech firms has eroded sharply. In addition, many companies are letting leases expire or are renewing for smaller footprints. “Last week, Microsoft announced it would offer up several hundred thousand square feet in Seattle. The tech bellwether has already announced plans to relinquish more than two million square feet in that city. One in Three Office Buildings in Major North American Cities Could Be Ripe for Multifamily Conversion The combination of 1) companies (especially tech firms) continuing to lay off people by the tens of thousands, 2) the ongoing shift to working from home, and 3) the current U.S. housing shortage has caused landlords across the country to seek innovative ways to fill their millions of square feet of empty space. “Up to 34% of office buildings in 14 major North American markets could be potential candidates for adaptive reuse. Looking at more than 26,000 buildings, office to residential conversions could open the door to potential housing for thousands of families in as many as 8,996 properties,” according to global commercial real estate advisor firm Avison Young. “Adaptive reuse is an important conversation we are having around the art of the possible, to demonstrate how this potential solution contributes to placemaking and to the revitalization and vibrancy of our neighborhoods—particularly our downtown cores,” said Sheila Botting, Principal and President, Professional Services, Americas at Avison Young. “We must reimagine how we want to live, work and play. Adaptive reuse is one of the key components of how we do that as a community.” For more, click here. Kaufman Development is buying Franklinton’s Idea Foundry, the largest makerspace in the world5/20/2023
 Kaufman development’s massive Franklinton development project, Gravity, has a massive new acquisition to its name. The Idea Foundry, a 65,000 square foot former factory located at 421 W. State St. billed as “the largest makerspace in the world”, will be purchased by Kaufman, to become part of the Gravity community. Gravity’s second phase, which is currently under construction, is located across State Street from the Idea Foundry. Created in 2008 by Alex Bandar, the Idea Foundry moved to its current Franklinton location in 2014. Today, it houses more than 500 entrepreneurs and makers, and is home to a litany of state of the art tools like laser cutters and 3D printers. According to a press release, Kaufman will purchase the Idea Foundry from owners Nancy Kremer and Christopher Celeste. Bandar will continue to operate the space, which will now be backed by Kaufman’s resources.
“Kramer and Christopher took a scrappy, grassroots community of makers, put us in a rocket ship and launched us. Now, Kaufman is refueling us to take us even higher,” Bandar said in a press release. “There is already so much synergy between The Idea Foundry and Gravity, and this will allow us to amplify and accelerate our growth and impact in remarkable ways. This takes us from being a space for creatives to being a district for creatives, with opportunities that will be unique to any makerspace in the world.” Gravity tenants will have access to the Idea Foundry under the change in ownership, and the space could see a variety of potential new additions, such as building out the Foundry’s basement, rooftop and parking lot, creating an artist-in-residence and entrepreneur-in-residence programs, and creating pop-up spaces for artists and makers.  Nation's Biggest Mall Landlord Steps Up Efforts To Diversify, Transform Its Retail Centers Simon Property Group, the nation's largest mall owner, expects to spend roughly $1.5 billion building 2,000 multifamily units and hotel rooms as it looks to add density and expand some of its retail properties in new ways.
The Indianapolis-based landlord estimated it will have construction of the projects completed over a five-year span, CEO David Simon said Tuesday on a first-quarter earnings call. He discussed the real estate investment trust's pipeline of apartments and hospitality properties while pointing to what he described as the company's successful redevelopment of Phipps Plaza in Atlanta, a mall that now has a Nobu hotel and restaurant and Life Time fitness center on its site. Mall owners around the nation have been diversifying and adding density to their centers, bringing in nontraditional retail uses to help drive foot traffic and to take the place of vacant anchor tenant space and unused surface parking lots. And now Simon Property is stepping up its efforts on that front. “We have several densification projects under construction and a pipeline of identified projects," David Simon, who is also the company's chairman and president, told Wall Street analysts. "Now that’s not going to happen overnight, but that’s going to happen over the next few years," he said. "So that to us is a real opportunity.” Simon Property expects to start work on several of these projects this year, but the CEO said the REIT is "frankly being a little bit cautious." Simon said, "We’re still permitting some things in California and the Northwest. So we’re going to just see how the world is." Plans for Texas, California and Florida Asked about the cost of the multifamily units and hotel rooms, Simon said it is hard to isolate them from overall mall redevelopment efforts. "But my instinct would be probably about a billion and a half dollars. ... Somewhere in that range" for the construction, he said. The CEO didn't offer too many details. But he said some of the residential units are planned for Austin, Texas; Orange County, California; and Seattle. In terms of hotels, they will be headed for Florida, as will some residential units, according to Simon. “It’s kind of where you would expect it to be, where supply and demand is in our favor,” he said. The REIT is also considering building a hotel on Cape Cod, Massachusetts, because there would be a demand for it there, according to Simon. The CEO didn't specify which malls, if any, the 2,000 units would be built and added to. But Simon did refer to the reimagining of Phipps Plaza in the Buckhead section of Atlanta. "As we give back real estate through our redevelopment efforts, the big focus is on where we can add some mixed uses, because we do think that what we did in Buckhead is having a tremendous impact on the overall value of that real estate,” Simon said. Possible Joint Ventures There are several ways the company could finance the construction, according to the CEO. “I think we will do selective [joint ventures] on certain of the residential development," Simon said. "And it also may be that we could potentially bring in third-party equity, too. We’ll look at each deal individually. But that’s certainly a possibility.” Last October, Simon Property acquired a 50% stake in developer Jamestown as it looks to expand and wring new revenue from its portfolio by diversifying its shopping centers. Jamestown has been involved in landmark projects such as Chelsea Market in New York City. The CEO also said leasing demand is strong at Simon Property's malls and that the properties are getting a boost because tourism is coming back. The 2.8 million-sf development will include 36,000 sf of restaurants, retail space.  The project, a redevelopment at the site of a dated shopping center, will be marketed as the new “front door to Davie, Fla.” targeted to young professionals. $1 billion residential project, The District in Davie, will bring 1.6 million sf of new Class A residential apartments to the hot South Florida market. Located near Ft. Lauderdale and greater Miami, the development will include 36,000 sf of restaurants and retail space. The development will also provide 1.1 million sf of access controlled onsite parking with 2,650 parking spaces. The project, a redevelopment at the site of a dated shopping center, will be marketed as the new “front door to Davie,” targeted to young professionals. Amenities include a pool and 24-hour fitness/spa treatment room, a penthouse level Sky Lounge reservable for indoor and outdoor entertainment with kitchen and seating, and ground floor storefront spaces. Planned lifestyle amenities include pet-friendly features such as bark parks and grooming stations, game lounges and children’s play suites, as well as multiple work-from-home accommodations including co-working spaces and meeting rooms. The project’s five buildings will range from 20–24 stories, each level offering thoughtfully designed studio, one-, two-, and three-bedroom apartments, some with dens. Unit sizes range from 589 sf to 1,460 sf. Each unit will provide keyless entry, high-speed Internet, and smart thermostats. Outdoor social spaces will include rooftop pools, outdoor kitchens, fire pits, and green spaces for outdoor yoga, games, and movies. Planned green elements include electric vehicle charging stations in garages, complimentary bicycle parking/storage areas, and LED lighting technology for energy efficiency. Light-filled rental apartments include exceptional finishes, flexible layouts, and state-of-the-art appliances. Designed for the South Florida lifestyle, the rental units prioritize indoor/outdoor living with ample glass and private terraces on each floor. The apartments are complemented by a robust amenities package for multi-generational appeal. Phase one completion is expected in 2025.  Report analyzes transaction volume, debt availability and asset pricing and identifies opportunities in the Americas, Asia, Europe. Hines, the global real estate investment, development and property manager, released its global outlook titled, “2023: Navigating Through the Labyrinth” today. Following the turbulence in 2022, opportunities will abound this year due to repricing, continued outperformance of high-quality office assets, and deflation in some key sectors. Global Chief Investment Officer David Steinbach said, “In a period of global economic discord, transaction volume will be unlocked with debt availability and the reset of pricing levels more in line with expected fundamentals. Successful acquisitions and developments in the new year will also focus on high quality assets that meet customer demands for simplicity and flexibility. We expect to see more accretive opportunities emerge in 2023.” Looking at global trends, the report reveals that mostly industrial and for-rent residential markets continued to have solid fundamentals. Retail fundamentals saw recovery from the damage caused by lockdowns, but high inflation in many markets is cutting into discretionary spending and is disrupting continued recovery. While short-term rates are expected to fall and long-term rates to remain sticky, the report outlines a few key areas as signs for investors to pivot strategies, including improvement in transaction volume, rising availability of traditional debt, and cost-averaging down (i.e., deploying capital patiently during a market disruption). Sectors in Our Sights Utilizing proprietary research tools to analyze market data, the report provides sector insights for the Americas, Asia, and Europe and suggests how real estate investment strategies should evolve this year: Americas Investors are still recalibrating their portfolios, as they have seen downturns on both the equity and fixed-income sides of their ledgers. Tenants have been reviewing their growth plans for the year ahead and pausing on new activity, however, there is potential for opportunities during the second half of the year, including:
Against the backdrop of this year’s macroeconomic and political headlines, the rebalancing of real estate product types has largely played out. Trends have indicated that the real estate industry’s main sectors may converge further. Opportunities exist in:
As we look at strategies for 2023, the ‘beds and sheds revolution’ of recent years has played out. There is no longer a standout winning sector. Our ability to understand nuances of quality within a product type has become more important than just picking the right general bucket. Opportunities will include:
Click here to read the report and watch a video from David Steinbach, global chief investment officer at Hines. About Hines Hines is a global real estate investment, development and property manager. The firm was founded by Gerald D. Hines in 1957 and now operates in 28 countries. We manage a $92.3B¹ portfolio of high-performing assets across residential, logistics, retail, office, and mixed-use strategies. Our local teams serve 634 properties totaling over 225 million square feet globally. We are committed to a net zero carbon target by 2040 without buying offsets. To learn more about Hines, visit www.hines.com and follow @Hines on social media. ¹Includes both the global Hines organization as well as RIA AUM as of June 30, 2022.  |
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